U.S. Court of Appeals for the Second Circuit, Beierwaltes v. Office fédéral de la culture et Administration fédérale des douanes de la Confédération Suisse, Docket No. 19-3457, 19-3481

 

Customs

 

Import

Illegal Trafficking of Cultural Property

 

Taking

Seizure (Here in Switzerland)

Is the U.S. District Court Vested with Jurisdiction?

 

State’s Police Powers

Expropriation Exception

Does the Expropriation Exception Incorporate an Exhaustion Requirement?

 

Foreign Sovereign Immunities Act

Comity

 

 

 

Appeals from the United States District Court for the Southern District of New York Nos. 18-cv-8248, 18-cv-11167.

 

In 2017, Swiss law enforcement officers seized more than a thousand pieces of ancient art owned by the plaintiffs as part of an ongoing investigation into illegal trafficking of cultural property in Switzerland. The plaintiffs sued the defendant Swiss government entities and instrumentalities in the Southern District of New York, alleging that the seizure was arbitrary and made without probable cause. The district court (Abrams, J.) dismissed the cases, holding that it lacked jurisdiction over the defendants under the Foreign Sovereign Immunities Act. The plaintiffs now appeal, arguing that jurisdiction is proper under the statute’s “expropriation exception,” which applies in cases involving property taken by a foreign state in violation of international law. See 28 U.S.C. § 1605(a)(3). We disagree and AFFIRM the district court.

 

A routine law enforcement seizure does not ordinarily constitute a taking at all, let alone a taking in violation of international law, because it falls within a state’s traditional police powers. And while there are a handful of narrow exceptions to that general rule, such as when the seizure (i) is not rationally related to a public purpose, (ii) is a pretextual attempt to nationalize property without compensation, or (iii) has continued for an unreasonable amount of time, none of those exceptions applies here. Accordingly, the seizure was not a taking in violation of international law, and the Foreign Sovereign Immunities Act therefore does not vest the district court with jurisdiction.

 

Foreign governments and their instrumentalities are ordinarily immune from suit in American courts under the Foreign Sovereign Immunities Act, 28 U.S.C. § 1602, et seq. (the “FSIA”). There are, however, several statutory exceptions to that general rule. One of those exceptions is the “expropriation exception,” which may be invoked in certain cases involving property taken by a foreign government or its instrumentality in violation of international law. See id. § 1605(a)(3). The question before us is whether that exception applies to property that was seized as part of an ongoing law enforcement investigation. We hold that such seizures ordinarily do not constitute a taking at all, much less a taking in violation of international law. And while there are a handful of narrow circumstances in which a seizure can fall within the scope of the expropriation exception, none applies to this case. Accordingly, we AFFIRM the judgment of the district court (Abrams, J.).

 

In December 2016, a border patrol officer for the Federal Customs Administration of the Swiss Confederation (the “Swiss Customs Administration”) stopped a Land Rover registered to Phoenix that was entering the country across the French border. During a routine inspection of the SUV, the officer identified what appeared to be an illegally imported antique oil lamp along with receipts for a storage warehouse in Geneva. The driver and passenger were questioned and eventually released around 2:00 AM the following morning.

 

(…) The Swiss Customs Administration developed a “strong suspicion” that the warehouse was being used to store numerous pieces of illegally imported art and antiquities. Thereafter, on February 10, 2017, the Swiss Customs Administration issued a “denunciation,” asserting that X. and others were involved in the “sudden and suspicious movement . . . of a number of articles of cultural property.” Id. at 39. This denunciation was similar to one that had been prepared the prior month by the Swiss Federal Office of Culture (together with the Swiss Customs Administration, the “Swiss Agencies”). That earlier denunciation had identified “seven objects of suspicious provenance.

 

On February 24, 2017, based on those two denunciations, the Public Prosecutor’s Office of the Republic and Canton of Geneva issued a search and seizure order, naming as defendants (…). As a result, it authorized the seizure of relevant objects and documents found in various storage locations. Pursuant to that authorization, Swiss authorities seized nearly 12,000 antiquities. Rather than physically remove the objects, however, authorities simply “segregated them in place.” The seizure order informed the named defendants that they could appeal the order to “the criminal board of appeals of the Court of justice” in Geneva. Days later, the Swiss Customs Administration issued a separate search warrant as part of a “criminal customs inquiry” into potential violations of Swiss law, including evasion of Swiss import taxes. Id. at 56. Pursuant to that warrant, additional artifacts were seized. Similar to the Geneva prosecutor, the Swiss Customs Administration permitted the seized items to remain with Y. and X., and simply “prohibited the couple from disposing of them.” And, like the Geneva search warrant, the Swiss Customs Administration’s warrant made clear that the seizure could be challenged through domestic legal proceedings.

 

(…) In 1952, in what has been dubbed the “Tate Letter,” the State Department changed course and enunciated “a new, ‘restrictive’ theory of sovereign immunity.” Garb, 440 F.3d at 585. Under that theory, sovereign immunity continued to be recognized where “public acts” were concerned but was no longer extended in “cases arising out of a foreign state’s strictly commercial acts.” Verlinden, 461 U.S. at 487; see also Garb, 440 F.3d at 585.

 

(…) There are exceptions for waiver, commercial activity, expropriations, succession, personal injury in the United States, arbitration, maritime liens, state-sponsored terrorism, and counterclaims. See 28 U.S.C. §§ 1605, 1605A, 1607. Together, these exceptions form the “sole basis for obtaining jurisdiction over a foreign state in our courts.” Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434 (1989).

 

It is undisputed that the defendants in this case – a political subdivision of the Swiss Confederation and two Swiss federal agencies – are all foreign sovereigns under the FSIA. See 28 U.S.C. § 1603(a) (defining “foreign state” to include “a political subdivision of a foreign state or an agency or instrumentality of a foreign state”). So, to hale them into court, the Art Owners must demonstrate that this case falls within one of the FSIA’s exceptions. The Art Owners identify only one exception as applicable: the expropriation exception. As its name suggests, the expropriation exception supplies federal courts with jurisdiction over certain cases concerning property taken by a foreign government: A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case . . . in which rights in property taken in violation of international law are in issue and that property or any property exchanged for such property is present in the United States in connection with a commercial activity carried on in the United States by the foreign state; or that property or any property exchanged for such property is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the United States. 28 U.S.C. § 1605(a)(3).

 

Notably, “no other country has adopted a comparable limitation on sovereign immunity.” Philipp, 141 S. Ct. at 713. The reason for our nonconformity is that “the United States has long sought to protect the property of its citizens abroad as part of a defense of America’s free enterprise system.” Id.

 

A plaintiff seeking to invoke this exception must show four things:

“(1) that rights in property are in issue; (2) that the property was ‘taken’; (3) that the taking was in violation of international law; and (4) that one of the provision’s two nexus requirements is satisfied.” Rukoro, 976 F.3d at 224 (quoting Zappia, 215 F.3d at 251); see also Restatement (Fourth) of Foreign Rels. L. of U.S. § 455 cmt. a (Am. L. Inst. 2018). Our decision today concerns the second and third elements of the exception, which requires unpacking the meaning of the phrase “taken in violation of international law.” The expropriation exception is concerned only with illegal takings. And the legal standards by which takings are judged are not found in the domestic laws of the United States or even the laws of the “expropriating” nation, but rather in customary international law. See Permanent Mission of India, 551 U.S. at 200. To determine which takings offend these international standards, we have historically turned, in part, to House Report 94-1487 on the FSIA legislation. See Chettri, 834 F.3d at 58; Zappia, 215 F.3d at 251. The House Report identifies three categories of illegal takings: (i) “nationalizations or expropriations of property without payment of . . . prompt, adequate, and effective compensation”; (ii) takings that are “discriminatory”; and (iii) takings that are “arbitrary.” See 12  H.R. Rep. No. 94-1487, at 19–20 (1976), as reprinted in 1976 U.S.C.C.A.N. 6604, 6618, see also Chettri, 834 F.3d at 58. In this appeal, the plaintiffs focus their arguments on the third category, claiming that the seizure of their artwork was arbitrary. Today, we hold that an “arbitrary taking” is a taking that bears no rational relationship to a public purpose. We settle on this definition for two reasons. First, the lack of a public purpose has been identified by both courts and the Restatement as a paradigmatic example of a taking that violates international law. See, e.g., Comparelli v. República Bolivariana de Venezuela, 891 F.3d 1311, 1326 (11th Cir. 2018); Cassirer v. Kingdom of Spain, 616 F.3d 1019, 1027 (9th Cir. 2010) (en banc); Chettri v. Nepal Bangladesh Bank, Ltd., No. 10-cv-8470 (PGG), 2014 WL 4354668, at *16 (S.D.N.Y. Sept. 2, 2014), aff’d, 834 F.3d 50 (2d Cir. 2016); Smith Rocke Ltd. v. República Bolivariana de Venezuela, No. 12-cv-7316 (LGS), 2014 WL 288705, at *7 (S.D.N.Y. Jan. 27, 2014); Restatement (Third) § 712(1)(a) & cmt. e; Restatement (Second) § 185(a). Second, this definition dovetails with the restrictive approach to sovereign immunity announced in the Tate Letter and largely codified in the FSIA, see Philipp, 141 S. Ct. at 713; Garb, 440 F.3d at 585–86, which “recognizes immunity in cases based on a foreign state’s public acts, but not in cases based on commercial or private acts,” H.R. No. 94-1487, at 8, as reprinted in 1976 U.S.C.C.A.N. at 6607.

(13 The plaintiffs do not argue that Switzerland or Geneva has nationalized or expropriated their artwork or that the seizures were the result of discrimination.)

 

(…) We conclude that a foreign state’s action is an arbitrary “taking in violation of international law” if the foreign state exceeds its traditional police powers to deprive an alien of substantially all the benefit of her property in a way that is not rationally related to a public purpose.

 

B. The Swiss Investigatory Seizure

Seizure made as part of an ongoing law enforcement investigation can constitute a taking in violation of international law. The answer is “yes,” but only in rare circumstances. Such circumstances are not present here.

1. When Does a Temporary Law Enforcement Seizure Constitute a Taking?

Temporary law enforcement seizures ordinarily do not constitute a taking at all, much less a taking in violation of international law. See Chettri, 834 F.3d at 58 (rejecting “the proposition that” a foreign state’s decision to “freeze . . . financial assets in connection with . . . a routine law enforcement action . . . constitutes a taking within the meaning of the FSIA”); see also Off. Stanford Invs. Comm. v. Bank of Antigua, No. 13-cv-762 (DCG), 2018 WL 3956470, at *4 (N.D. Tex. Aug. 17, 2018); Hilsenrath v. Swiss Confederation, No. C 07-02782 (WHA), 2007 WL 3119833, at *4 (N.D. Cal. Oct. 23, 2007), aff’d, 402 F. App’x 314 (9th Cir. 2010); Greenpeace, Inc. (U.S.A.) v. State of France, 946 F. Supp. 773, 782–84 (C.D. Cal. 1996); Restatement (Third) § 712 cmt. g; Restatement (Second) §§ 192 n.2, 197. This is because such seizures usually fall within the scope of a state’s traditional police powers. See Restatement (Third) § 712 cmt. g; cf. Warden, Md. Penitentiary v. Hayden, 387 U.S. 294, 302 (1967) (discussing police powers in the domestic context).

 

But, of course, a foreign state cannot absolve itself of liability for an otherwise illegal taking simply by branding the action as a law enforcement seizure.

 

Accordingly, there are a handful of circumstances in which this general rule does not apply. Three of those circumstances are relevant here.

First, a law enforcement seizure may constitute an illegal taking if the seizure is not rationally related to a public purpose. See West, 807 F.2d at 831 (recognizing that “valid expropriations must always serve a public purpose” (emphasis added)); Chettri, 2014 WL 4354668, at *16 (similar); see also Restatement (Third) § 712(1)(a). In other words, if a law enforcement seizure is “arbitrary,” as we explained that term above, then it both falls outside the scope of the state’s traditional police powers because it serves no valid governmental objective and violates international law.

 

Determining whether a particular seizure constitutes an arbitrary taking for purposes of the FSIA is not the same as asking whether the seizure is unlawful under the “seizing” nation’s applicable criminal laws. See Chettri, 834 F.3d at 58 (holding that “conclusory criticisms of the manner in which the foreign state has conducted its investigation are insufficient to prove a violation of international law”). Rather, it requires first asking whether the law enforcement investigation itself is rationally related to a public purpose. If so, then as long as the seizure bears a rational connection to that investigation, the seizure is not arbitrary. See Chettri, 834 F.3d at 58; West, 807 F.2d at 831; Greenpeace, 946 F. Supp. at 783.

 

Second, even if a seizure bears some facial connection to a public purpose, it may nonetheless constitute an illegal taking if that public purpose is shown to be a “sham” – that is, if the seizure is merely a ploy by the foreign state either to nationalize the plaintiff’s property without compensation or to discriminate against her because she is an alien. Siderman de Blake v. Republic of Argentina, 965 F.2d 699, 704 (9th Cir. 1992); see Restatement (Third) § 712 cmt. g. While pretextual seizures will likely be few and far between, such seizures will often be recognizable from an examination of the investigation’s course, or because the foreign officials have acted in such a way or made statements that strongly suggest that there is an ulterior motive at work. See, e.g., Comparelli, 891 F.3d at 1317, 1327– 28 (remanding for district judge to consider whether expropriation exception was satisfied where government seized plaintiffs’ chemical company on grounds it illegally stored three million unreported pounds of hydrochloric acid, but physical audit revealed only excesses “within the normal tolerance margins associated with the weighing of bulk purchases”); see also Siderman, 965 F.2d at 704 (finding expropriation exception satisfied under pre-Helmerich & Payne standard where government first “imprisoned and killed the accountant to whom Sidermans had granted management powers” and then held ex parte receivership proceeding on grounds company “lacked a representative”).

 

Third, a temporary law enforcement seizure that is not initially a taking can nonetheless ripen into an arbitrary one if it continues for an unreasonably long and indefinite period. See Sardino v. Fed. Rsrv. Bank of N.Y., 361 F.2d 106, 111 (2d Cir. 1966) (acknowledging that it is “hard to say there is no deprivation when a man is prevented both from obtaining his property and from realizing any benefit from it for a period of indefinite duration which may outrun his life”); see also Restatement (Third) § 712 cmt. g, n.6 (explaining that a temporary seizure “might become a taking if it is long extended”); Restatement (Second) § 192 n.2. Of course, there is no catchall answer to the question of how long is too long; each investigation is unique and must be considered in context. But there are a few factors that courts might consider in addition to the duration of the seizure to help guide this assessment, including: (i) whether the investigation has been prosecuted diligently since the seizure occurred; (ii) the complexity and scope of the investigation; (iii) whether formal criminal charges have been filed that bear some connection to the seized property; and (iv) whether the plaintiff has cooperated with the investigation or taken any other steps, judicial or otherwise, to move the investigative process along. See, e.g., Chettri, 2014 WL 4354668, at *18; Greenpeace, 946 F. Supp. at 783.

 

(16 It goes without saying that this does not apply to seizures that become permanent because of a bona fide criminal conviction. See Restatement (Third) § 712 cmt. g (indicating that a “forfeiture for crime” does not constitute a taking even though it results in the permanent “loss of property”).)

 

(17 This last factor is not intended to impose an exhaustion requirement on plaintiffs. Rather, it is an acknowledgment that, all else being equal, a seizure’s duration will look very different depending on whether the plaintiff has taken advantage of the tools at her disposal to help speed up the investigation. Simply put, a plaintiff who refuses to utilize those lawful tools should reasonably expect that the investigation will take longer as a result.)

 

The Art Owners identify a fourth circumstance in which they argue a law enforcement seizure would come within the boundaries of the expropriation exception: if the seizure is made without probable cause in contravention of either the “seizing” nation’s law (here, Switzerland) or the Fourth Amendment. But, in making this argument, the Art Owners identify no precedent suggesting that international law has adopted those probable cause standards, let alone that an investigatory seizure in violation of those standards would automatically constitute an illegal taking. And while that alone is fatal to the Art Owners’ position, it is also noteworthy that the Fourth Amendment itself has only limited extraterritorial application. See United States v. Getto, 729 F.3d 221, 227–28 (2d Cir. 2013) (holding that the Fourth Amendment generally does not require “suppressing evidence collected by foreign law enforcement authorities abroad”); see also United States v. Hasbajrami, 945 F.3d 641, 662–63 (2d Cir. 2019); United States v. Odeh (In re Terrorist Bombings of U.S. Embassies in E. Africa), 552 F.3d 157, 167–71 (2d Cir. 2008). We therefore reject the Art Owners’ invitation to conclude that a foreign law enforcement seizure that fails to meet the probable cause standards found in Swiss or United States law ipso facto constitutes a taking in violation of international law.

 

Before applying these principles to the law enforcement seizure at issue here, we pause for a note of caution. Specifically, courts must be deferential when assessing a foreign sovereign’s police activities. One of the FSIA’s purposes is to avoid stoking international tensions, see Philipp, 141 S. Ct. at 714; Zappia, 215 F.3d at 251, and meddling in a foreign nation’s ongoing criminal investigations will often be invasive of its sovereignty. As a result, we expect that law enforcement seizures will be declared to be illegal in only rare and egregious circumstances. See Chettri, 834 F.3d at 58; Restatement (Second) § 185 cmt. b (noting that “there appear to be few, if any, cases in which a taking has been held unlawful under international law on the sole and specific ground that it was not for a public purpose”).

 

2. The Swiss Law Enforcement Seizure Is Not a Taking

The investigation in this case bears a rational relationship to a public purpose. Swiss law enforcement officers observed Phoenix employees and Z.’s sister-in-law engaging in what appeared to be criminal violations of customs laws and the unlawful importation of art. Curtailing criminal activity is in the public interest, and stopping the illegal importation of cultural property is important to Switzerland’s efforts to comply with its obligations under the UNESCO Convention.

 

The Art Owners’ property also has a rational connection to this investigation, as it was stored in warehouses owned and operated by individuals whom Swiss authorities suspected of illegally importing and possessing cultural property. This remains true regardless of whether the seized art was actually owned by one of the named defendants in the Swiss investigation or was owned by a third party (like the Art Owners). See Off. Stanford Invs. Comm., 2018 WL 3956470, at *1, *4 (finding that a seizure of assets involved in a Ponzi scheme was not a taking even though those assets were scheduled to be distributed to the fraud’s victims); cf. Bennis, 516 U.S. at 453 (explaining that, in the context of domestic law, the inquiry focuses on the character of the government action, not the culpability or innocence of the property owner). In either case, the property bore some rational connection to the investigation. Accordingly, the seizure of the Art Owners’ property was rationally connected to a public purpose and, as a result, was not arbitrary.

 

While that conclusion could have been overcome had the Art Owners identified facts strongly suggesting that the investigation and seizure were merely a pretext to allow Switzerland to nationalize their property without compensation or to discriminate against them because of their foreign citizenship, the district court did not clearly err in finding that they had not done so.

 

Thus, there is no suggestion that the Swiss Agencies or Geneva are claiming a legal interest in the seized property or are manufacturing after-the-fact explanations for an illegal expropriation.

 

Because the seizure was not a taking in violation of international law when it occurred, the only way it might come within the expropriation exception is if it had become a taking over time. We conclude that it has not.

 

As of now, the seizure has been ongoing for a little more than four years (and, importantly, the Art Owners sued after only one and a half years). This duration is not out of step with what one would expect in an investigation involving thousands of pieces of art and antiquities, nor is it significantly longer than the duration of seizures that courts have previously found not to constitute a taking. See, e.g., Chettri, 834 F.3d at 54, 58 (two and a half years before criminal charges were filed); Acadia Tech., 458 F.3d at 1329 (four years before forfeiture complaint was filed in domestic investigation). In fact, the Art Owners’ counsel conceded below that the seizure “isn’t indefinite yet.” Aboutaam App’x at 613.

 

And while criminal charges have not yet been filed, the investigation has progressed since the initial seizure.

 

Also relevant here is the fact that the Art Owners have thus far refused to cooperate with the investigation and have not otherwise taken advantage of domestic Swiss remedies that could potentially speed things along. Having chosen not to avail themselves of those opportunities, the Art Owners should reasonably have expected that the investigation would take longer.

 

Before moving on, we offer a few additional words about the Art Owners’ decision to sue in the United States before seeking recourse in Swiss court. See Aboutaam, 2019 WL 4640083, at *5. Whether the expropriation exception incorporates an exhaustion requirement is the source of some dispute among our sister circuits. Compare Federal Republic of Germany v. Philipp, 894 F.3d 406, 414–16 (D.C. Cir. 2018) (rejecting an exhaustion requirement), vacated on other grounds, 141 S. Ct. 703 (2021), with Fischer v. Magyar Allamvasutak Zrt., 777 F.3d 847, 854, 856–59 (7th Cir. 2015) (declaring exhaustion to be required under international law), and Abelesz v. Magyar Nemzeti Bank, 692 F.3d 661, 678–85 (7th Cir. 2012) (same); see also Republic of Austria v. Altmann, 541 U.S. 677, 714 (2004) (Breyer, J., concurring) (explaining that “a plaintiff who chooses to litigate in this country in disregard of the postdeprivation remedies available in the ‘expropriating’ state may have trouble showing a ‘taking in violation of international law’” (brackets omitted)); Cassirer, 616 F.3d at 1034–37 (concluding that the FSIA does not mandate exhaustion, but leaving open whether courts may consider exhaustion as a prudential factor before accepting jurisdiction over a case against a foreign sovereign). Because we can resolve this case on other grounds, we do not analyze this issue. That said, the Art Owners’ suggestion that exhaustion would have been futile here simply because the Swiss government is on the other side of the “v.” borders on the frivolous. Absent a strong showing to the contrary, we have no reason to question the Swiss judiciary’s ability to fairly and impartially review the lawfulness of its government’s actions.

 

For the foregoing reasons, we AFFIRM the judgment of the district court.

 

 

(U.S. Court of Appeals for the Second Circuit, June 8, 2021, Beierwaltes v. Office fédéral de la culture et Administration fédérale des douanes de la Confédération Suisse, Docket No. 19-3457, 19-3481)